Virginia is weighing whether to pull back tax incentives that helped make it a major data-center hub—an effort that comes as local and national pushback on data-center growth spreads alongside concerns about AI’s impact on energy demand and household bills. The debate centers on a proposed change that Virginia senators approved to end what the AP described as a projected $1.6 billion annual tax break for the industry and require a minimum 5.3% sales tax.
Nearly two decades ago, Virginia gave tech companies a tax break on equipment and software. The AP reported that the state became a data center hub as companies kept building, while residents raised complaints about noise and the broader strain on power infrastructure. In that context, opponents of the current shift warn that ending incentives could slow construction, while supporters argue the state should reconsider the size and design of the benefits it offers.
Republican Sen. Mark Obenshain said the issue has moved from “NIMBY” to what he called “banana” politics—arguing, as AP reported, that opponents want building halted broadly rather than only near specific areas. AP said the vote and debate also reflect a broader national pattern, with dozens of communities holding fights in local zoning meetings and with lawmakers considering changes to tax breaks tied to data centers.
Supporters of the tax-break rollback say the state needs to revisit incentives that have been offered for years. AP reported that state and town officials have used tax breaks such as property tax abatements and sales tax exemptions to attract developers, including incentives intended to make it easier for companies to spend on servers, routers, HVAC equipment and other construction needs.
In Virginia, AP said the Senate’s move to end the tax breaks drew bipartisan support, with 21 Democrats and seven Republicans voting for the proposal. Sen. Richard Stuart, a Republican, told AP that repealing the tax break would not change the speed of new construction in the state.
But House action is still unresolved. AP reported that House Democrats are pushing to keep the tax breaks in place, and that Democrats and senators are sparring over the proposal as they negotiate the state budget before a deadline. The AP reported that Gov. Abigail Spanberger’s office said it was wary of “going back on Virginia’s commitments to businesses that have invested in the Commonwealth.”
Sen. L. Louise Lucas, who chairs the finance committee and backs the tax change, responded on X, AP reported, challenging Spanberger’s stance and raising questions about what budget items could be funded if the tax proposal were not advanced. AP said the dispute is also shaped by the timing of the legislative session, with lawmakers working toward an agreement on and passage of a spending plan by Saturday.
Outside Virginia, AP said other states are reconsidering similar tax incentives or adding conditions. Minnesota lawmakers removed a sales tax exemption on purchases of electricity by the largest data centers and imposed a fee for electricity use, along with added scrutiny over water use, AP reported. In Washington state, AP said legislation would keep the tax break for new data centers but remove it for existing facilities that upgrade or replace equipment, and Illinois Gov. J.B. Pritzker called for a two-year pause on data center tax breaks while Arizona Gov. Katie Hobbs said she wants to eliminate the sales tax exemption entirely.
AP also reported that bills to repeal or scale back data-center tax breaks have been introduced in Arizona, Michigan and Georgia, while advocates have continued to pressure lawmakers. The AP said the International Brotherhood of Electrical Workers lobbied at the statehouse urging lawmakers to protect data centers, and quoted Dorian Hargrave, a Virginia-based electrical worker, saying: “We need this industry. If we lose it, our economy is going to take a very big hit.”
In the midst of the legislative fight, the AP said Virginia’s tax department has reported that the industry has invested more than $80 billion in the state and created thousands of jobs over the past two years. The Data Center Coalition, representing tech companies, warned that the tax change would “effectively halt investment” from the industry, AP reported—an argument that could shape how the proposal fares as it moves into the House and budget negotiations.